Is RD Helpful for Income Tax Declaration Under 80C to Save Tax?

Section 80C of the Income Tax Act has a long list of investments you can make to save on taxes, but unfortunately, recurring deposits (RD) isn’t one of them. However, RDs are a great investment to make and have way too benefits to pass up! We’ve listed out everything you need to know about recurring deposits and how they can ultimately get you to save on taxes.

But first, if you’re looking to make investments to help you save on tax, here’s a list of investments we think are great!

These investments are lucrative and also have low to no risk. Only ELSS and ULIPs carry some risk. Now, making investments is not as easy as it seems for many people. When you’re living salary to salary, or have an income that’s just not enough to invest in an FD, a recurring deposit can help build up your savings fund.

Recurring deposits are a popular investment because they help meet both short-term and long-term goals. Though there are plenty of benefits of an RD, here are the top ones:

1. Start the habit of saving - Saving is a tough thing to do for many people. By the time our salary or payment is credited, we have already spent most of it. One of the best ways to start saving is opening a recurring deposit. You can save small amounts every month.
2. Easy to invest - If you have an online account, you can do it in a few minutes. The best part about RDs is that you can set a date on which the money will be automatically deducted from your account. For example, if you know you get your salary by the 5th of every month, set your RD schedule for 7th. Give it a little buffer in case your salary is delayed. Then the money is automatically deposited into the RD.
3. High interest rates - Depending on the bank you choose, you can earn 7% to 9% p.a. You can use an online RD calculator to check how much you can earn.
4. No financial burden - You can save small amounts so you don’t feel the burden. As you start to get into the habit of saving or as your income increases, then you can increase your RD amount as well.

Ultimately, once you build up enough capital, you can reinvest the maturity amount in a scheme that helps you save tax such as the 5-year fixed deposit. For example, if you invest Rs.5,000 every month in a 2-year RD at an interest rate of 6.90% p.a.

You will save an amount of Rs. 1,20,000.

You will earn interest of Rs. 8,960.

So, you will have Rs.1,28,960 to invest in something bigger. Thus, while it’s important to save on tax, you can also put aside some amount in an RD to grow your capital.